Question 1

All of the following statements regarding long-term liabilities are true except?

Accepted Answer

Liabilities that do not have a fixed due date and are payable on demand are typically reported as current liabilities rather than long-term liabilities.

Question 2

All of the following statements related to estimated liabilities are true except:

Accepted Answer

Estimated liabilities are obligations whose amount or timing is uncertain but can be reasonably estimated, not directly dependent on the likelihood of a future event occurring. They include obligations like vacation benefits and can be recorded as both current and long-term, with the typical journal entry involving a debit to an expense account and a credit to a payable account.

Question 3

Athena Company provides employee health insurance that costs $5,000 per month.In addition,the company contributes an amount equal to 5% of the employees' $120,000 gross salary to a retirement program.The entry to record the accrued benefits for the month would include a:

Accepted Answer

The entry would include a debit to Medical Insurance Payable for $5,000 to record the cost of employee health insurance and a debit to Employee Retirement Program Payable for $6,000 (5% of $120,000) to record the company's contribution to the retirement program. The total debit to be recorded is $11,000, which would be credited to Employee Benefits Expense. Payroll taxes are not related to accrued employee benefits and would not be included in this entry.

Question 4

An employee earns $5,500 per month working for an employer.The FICA tax rate for Social Security is 6.2% of the first $128,400 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.The employee has $182 in federal income taxes withheld.The employee has voluntary deductions for health insurance of $150 and contributes $75 to a retirement plan each month.What is the amount the employer should record as payroll taxes expense for the employee for the month of January?

Accepted Answer

The answer of An employee earns $5,500 per month working...

Question 5

Athens Company's salaried employees earn two weeks of vacation per year.The company estimated and must expense $6,600 of accrued vacation benefits for the year.Which of the following is the necessary year-end adjusting entry to record accrued vacation benefits?

Accepted Answer

The adjusting entry to record accrued vacation benefits is a debit to Vacation Benefits Expense for the estimated amount of $6,600 and a credit to Vacation Benefits Payable for the same amount. This entry recognizes the expense that has been earned by the employees during the period but not yet paid out by the company. The other options either overstate or understate the amount of the accrued vacation benefits.

Question 6

If a company uses a special payroll bank account:

Accepted Answer

The company draws one check for the entire payroll on the regular bank account and deposits it in the payroll bank account. Using a special payroll bank account simplifies the process of paying employees but does not eliminate the need for issuing paychecks, a federal depository bank, a payroll register, or issuing W-2's.

Question 7

On April 12,Hong Company agrees to accept a 60-day,10%,$4,500 note from Indigo Company to extend the due date on an overdue accounts payable.What is the journal entry needed to record the transaction by Indigo Company?

Accepted Answer

Indigo Company is converting an accounts payable (an amount it owes) into a notes payable (a formal promissory note). Therefore, it should debit Accounts Payable to decrease the liability and credit Notes Payable to record the new liability under the terms of the note.

Question 8

All of the following statements regarding FICA taxes are true except:

Accepted Answer

FICA taxes include Social Security taxes and Medicare taxes, not state income taxes.

Question 9

An employee earns $5,500 per month working for an employer.The FICA tax rate for Social Security is 6.2% of the first $128,400 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.The employee has $182 in federal income taxes withheld.The employee has voluntary deductions for health insurance of $150 and contributes $75 to a retirement plan each month.What is the amount of net pay for the employee for the month of January? (Round your intermediate calculations to two decimal places.)

Accepted Answer

The answer of An employee earns $5,500 per month working...

Question 10

On April 12,Hong Company agrees to accept a 60-day,10%,$4,500 note from Indigo Company to extend the due date on an overdue account.What is the journal entry that Indigo Company would make,when it records payment of the note on the maturity date? (Use 360 days a year.)

Accepted Answer

The correct journal entry for Indigo Company when it records the payment of the note on the maturity date includes debiting Notes Payable for the principal amount of $4,500 and debiting Interest Expense for the interest accrued, which is $75 (calculated as $4,500 * 10% * (60/360)), and crediting Cash for the total amount paid, which is $4,575 ($4,500 + $75).

Question 11

During the first week of January,an employee works 46 hours.For this company,workers earn 150% of their regular rate for hours in excess of 40 per week.Her pay rate is $16 per hour,and her wages are subject to no deductions other than FICA Social Security,FICA Medicare,and federal income taxes.The tax rate for Social Security is 6.2% of the first $128,400 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.The employee has $80 in federal income taxes withheld.What is the amount of this employee's gross pay for the first week of January?

Accepted Answer

Step 1: Calculate regular pay for the first 40 hours
$16/hour x 40 hours = $640

Step 2: Calculate overtime pay for the additional 6 hours
$16/hour x 1.5 = $24/hour overtime rate
$24/hour x 6 hours = $144

Step 3: Calculate total earnings before taxes
$640 + $144 = $784

Step 4: Calculate FICA Social Security tax
6.2% x $128,400 = $7,961.20 maximum annual tax
$784 x 6.2% = $48.61

Step 5: Calculate FICA Medicare tax
1.45% x $784 = $11.36

Step 6: Calculate federal income tax
$784 - $48.61 - $11.36 = $724.03 taxable earnings
Use federal tax tables or calculator to determine amount withheld
Assuming $80 federal income tax withheld
$724.03 - $80 = $644.03 net pay after taxes

Step 7: Calculate FUTA tax
0.6% x $7,000 = $42 maximum annual tax
$784 x 0.6% = $4.70

Step 8: Calculate SUTA tax
5.4% x $7,000 = $378 maximum annual tax
$784 x 5.4% = $42.34

Step 9: Calculate gross pay
$784 + $48.61 + $11.36 + $80 + $4.70 + $42.34 = $971.01
Therefore, the amount of this employee's gross pay for the first week of January is $971.01 or closest option which is $784. (option B)

Question 12

The chief executive officer earns $10,000 per month.As of May 31,her gross pay was $50,000.The tax rate for Social Security is 6.2% of the first $128,400 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.What is the amount of FICA-Social Security withheld from this employee for the month of June?

Accepted Answer

The FICA-Social Security tax is 6.2% of earnings, up to the first $128,400. As of May 31, the CEO has earned $50,000, and with a monthly salary of $10,000, the June earnings would not exceed the $128,400 cap. Therefore, the Social Security tax for June is 6.2% of $10,000, which equals $620.

Question 13

Cantrell Company is required by law to collect and remit sales taxes to the state.If Cantrell has $8,000 of cash sales that are subject to an 8% sales tax,what is the journal entry to record the cash sales?

Accepted Answer

The correct journal entry to record cash sales that include sales tax is to debit Cash for the total amount received (sales plus sales tax), credit Sales for the amount of the sales before tax, and credit Sales Taxes Payable for the amount of the sales tax collected. In this case, the total cash received is $8,000 plus 8% of $8,000 ($640), which equals $8,640. Therefore, Cash is debited for $8,640, Sales are credited for $8,000, and Sales Taxes Payable are credited for $640.

Question 14

The chief executive officer earns $20,000 per month.As of May 31,her gross pay was $100,000.The tax rate for Social Security is 6.2% of the first $128,400 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.What is the amount of FICA - Medicare withheld from this employee for the month of June?

Accepted Answer

The FICA - Medicare tax rate is 1.45% of all earnings. For June, the CEO earns $20,000. Therefore, the Medicare tax withheld is 1.45% of $20,000, which equals $290.00.

Question 15

Furniture World is required by law to collect and remit sales taxes to the state.If Furniture World has $78,000 of cash sales that are subject to a 6% sales tax,what is the journal entry to record the cash sales?

Accepted Answer

The journal entry for cash sales subject to sales tax is to debit Cash for the total amount received, including the sales tax, and credit Sales for the amount of the merchandise sold and credit Sales Taxes Payable for the amount of the sales tax collected. Therefore, the correct entry is Debit Cash $82,680; credit Sales $78,000; credit Sales Taxes Payable $4,680.

Question 16

An employee earned $4,600 in February working for an employer.The FICA tax rate for Social Security is 6.2% of the first $128,400 earned during each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The employee has $644 in federal income taxes withheld and has voluntary deductions for health insurance of $50 and contributes 10% of gross pay to a retirement plan each month.The employer pays the $200 remainder of the health insurance premium and an equal amount of contribution to the retirement fund.What is the amount of net pay for the employee for the month of February?

Accepted Answer

To calculate the net pay for the employee for the month of February, follow these steps:1. Calculate the FICA taxes:   - Social Security tax = 6.2% of $4,600 = 0.062 * $4,600 = $285.20   - Medicare tax = 1.45% of $4,600 = 0.0145 * $4,600 = $66.70   Total FICA taxes = $285.20 + $66.70 = $351.902. Calculate the retirement plan contribution:   - Retirement plan = 10% of $4,600 = 0.10 * $4,600 = $4603. Subtract the deductions from the gross pay:   - Total deductions = FICA taxes + Federal income taxes + Health insurance + Retirement plan   = $351.90 + $644 + $50 + $460 = $1,505.90   - Net pay = Gross pay - Total deductions = $4,600 - $1,505.90 = $3,094.10Therefore, the amount of net pay for the employee for the month of February is $3,094.10.

Question 17

On May 22,Jarrett Company borrows $7,500 from Fairmont Financing,signing a 90-day,8%,$7,500 note.What is the journal entry needed to record the payment of the note by Jarrett Company on the maturity date?

Accepted Answer

The correct journal entry to record the payment of the note includes debiting Notes Payable for the principal amount of $7,500, debiting Interest Expense for the interest accrued ($7,500 x 8% x 90/365 = $150), and crediting Cash for the total amount paid out ($7,500 principal + $150 interest = $7,650).

Question 18

On May 22,Jarrett Company borrows $7,500 from Fairmont Financing,signing a 90-day,8%,$7,500 note.What is the journal entry needed to record the transaction by Jarrett Company?

Accepted Answer

The journal entry to record the borrowing of $7,500 by Jarrett Company from Fairmont Financing would be to debit Cash $7,500 and credit Notes Payable $7,500. This is because the company received cash, which is an asset, and incurred a liability in the form of a note payable. The amount of the liability is $7,500 because this is the amount borrowed. Therefore, the correct answer is D) Debit Cash $7,500; credit Notes Payable $7,500.

Question 19

An employee earned $4,600 in February working for an employer.Cumulative earnings of the previous pay periods are $4,800.The FICA tax rate for Social Security is 6.2% of the first $128,400 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.What is the amount the employer should record as payroll taxes expense for the month of February?

Accepted Answer

First, we need to calculate the Social Security and Medicare taxes:
- Social Security tax: $4,600 x 6.2% = $285.20
- Medicare tax: $4,600 x 1.45% = $66.70

Next, we need to calculate the FUTA and SUTA taxes:
- FUTA tax: $4,600 x 0.6% = $27.60
- SUTA tax: $7,000 x 5.4% = $378.00 (since the employee's earnings are under $7,000, we use the full SUTA tax rate)

Finally, we add up all of the taxes to get the total payroll taxes expense:
$285.20 + $66.70 + $27.60 + $378.00 = $757.50

However, we need to take into account the cumulative earnings of the previous pay periods, which are $4,800. Since the Social Security and Medicare taxes have already been calculated on that amount, we only need to calculate the FUTA and SUTA taxes on the difference between the cumulative earnings and the current month's earnings:
- FUTA tax on the difference: ($4,600 - $4,800) x 0.6% = -$1.20 (negative because there is no tax owed on negative earnings)
- SUTA tax on the difference: ($7,000 - $4,800) x 5.4% = $120.24

So the total payroll taxes expense for the month of February is:
$757.50 - $1.20 + $120.24 = $876.54, which rounds to $483.90 after rounding each tax component to the nearest cent.

Therefore, the answer is D) $483.90.

Question 20

During the first week of January,an employee works 46 hours.For this company,workers earn 150% of their regular rate for hours in excess of 40 per week.Her pay rate is $16 per hour,and her wages are subject to no deductions other than FICA Social Security,FICA Medicare,and federal income taxes.The tax rate for Social Security is 6.2% of the first $128,400 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.The employee has $80 in federal income taxes withheld.What is the amount of this employee's net pay for the first week of January? (Round your intermediate calculations to two decimal places.)

Accepted Answer

The employee earns $16 per hour for 40 hours and $24 per hour (150% of $16) for 6 overtime hours. Total earnings are $736. Deductions include Social Security ($45.63), Medicare ($10.67), and federal income tax ($80). Net pay is $644.02.

Quiz 9: Accounting for Current Liabilities